Renesas forecasts flood of red ink

LONDON – Struggling Japanese chip firm Renesas Electronics Corp. has forecast it will make a net loss of 150 billion yen (about $1.91 billion) driven by restructuring costs for the fiscal year ending March 31, 2013, as it published sales down 11 percent sequentially for the first fiscal quarter, ended June 30.

The Renesas results and forecasts taken together indicate that an exceptionally large net loss of 81.7 billion yen (about $1.04 billion) will be endured albeit on increasing sales in the current quarter – Renesas' second fiscal quarter. This is expected to be related to very large restructuring costs.

Renesas, which has been loss making for many quarters, has been trying to raise about $1.3 billion to execute a rescue plan that involves laying off about one third of its workforce and closing more than half its domestic manufacturing sites.

The company, created from the chip making interests of Hitachi, Mitsubishi Electric and NEC, started trading in its present form on April 1, 2010. Even though it was tipped to be the fourth largest chip company in the world and to do well from its economies of scale it has been making losses.

For the first fiscal quarter Renesas reported a net loss of 20.8 billion yen (about $265 million) on sales revenue of 186.6 billion yen (about $2.38 billion). Sales revenue is down sequentially by 11.0 percent from 209.7 billion yen (about $2.68 billion) while the loss increased from one of 18.2 billion yen.

Renesas forecasts much more red ink coming along. For the first six months of the fiscal year Renesas said the net loss would be sharply up at 102.5 billion yen (about $1.31 billion) on sales revenue of 406 billion yen (about $5.18 billion). The loss making continues but rate is set to reduce over the two winter quarters Renesas predicts. For the full fiscal year ending March 31, 2013, Renesas forecasts a net loss of 150 billion yen (about $1.91 billion) on sales revenue of 883.1 billion yen (about $11.3 billion).

I don't know the particulars of Renasas, but merging the semi companies of some of the old keiretsu was a matter of survival. Once labor costs started to rise in Japan, the vertically integrated electronics manufacturing business model didn't work any more. It is a huge cultural change from a captive parts supply group to an open market semi company. There are a lot of very smart people working at Renesas, but it is possible the cultural change was too big to overcome.

Kris, read my lips, Renesas is a joke from the start, and it will continue to be a joke. It is a company who sole existence is to keep the pre-existing employees as much and as long as possible. While many of its products are competitive on a worldwide basis, many are NOT and the management simply do not have the gut and the strong wills to change the tide!

Losses are due to two things: Expenses too high and/or revenues too low. I know, thank you Captain Obvious.
I think that on the revenue side, they are not making enough of an effort to get the "long tail" customers - the smaller organizations that use 100K chips a year or less. There are only so many whales in the ocean. Eventually you need to eat minnows.
Also, their ecosystem needs work. A recent survey showed them at the bottom of the heap in this category.

Japan used to have massive vertical integration, low costs, "salaryman" culture of unpaid overtime. Samsung enjoys these advantages now. This business model does not work when you have high costs and you need to be more nimble and innovative.